Ninety One, SA’s largest asset manager, says the City of Cape Town has a winning infrastructure formula which makes it easy to draw in private sector participation.
The money manager, which is based in the city, said municipal infrastructure across the country is under strain, leaving councils to contend with essential service delivery, especially in water, energy and sanitation.
“This strain on financial resources, coupled with frequent disruptions in basic service delivery, has discouraged both domestic and international investment, compounding an already difficult situation. The complex landscape, however, brings with it compelling investment opportunities,” analyst from the company said in a note.
“If we take the City of Cape Town as an example, the metro offers a glimpse into how robust financial management can create a more stable environment for infrastructure investment. Cape Town’s disciplined financial management has led to the city delivering projects that generate consistent revenue streams and improved service delivery, even as it tackles broader infrastructure requirements due to growing demand.”
Data released by Stats SA in November showed that capital expenditure — money that is spent on machinery, construction, equipment, buildings, land and other fixed assets totalled R233bn in 2023, up nearly 11% from the cash spent in 2022.
Public corporations were the biggest capital spenders in 2023, followed by local government, provincial government, and national government and higher education institutions.
Eskom was the biggest spender followed by the Passenger Rail Agency of SA and Transnet.
SA municipal infrastructure offers opportunities to contribute to vital public services with the potential for long-term sustainable returns...
SA’s 257 municipalities spent R62bn in the period under review, with the City of Cape Town accounting for R7bn, mainly on water and sewerage infrastructure networks. Other large municipalities were also notable contributors, including City of Johannesburg, eThekwini, Ekurhuleni, City of Tshwane, Nelson Mandela Bay and Buffalo City.
Ninety One said the City of Cape Town has been innovative in raising funds for its infrastructure needs.
“In practical terms, the city’s approach means that its infrastructure projects, like the MyCiTi bus rapid transit system and water resilience initiatives, operate under a financially sustainable model that improves their attractiveness for potential investors,” it said.
“The city also pioneered sustainable financing in the municipal sector with the issuance of SA’s first municipal green bond in 2017. The R1bn bond was met with strong investor demand and raised funding specifically earmarked for climate resilient infrastructure projects. For investors, opportunities like Cape Town’s green bond provides commercial returns with the added appeal of contributing to environmental sustainability.”
The vast majority of SA’s municipalities are dysfunctional, bringing services in many areas to a halt. It is this dire state of affairs that will see the second phase of Operation Vulindlela pay particular attention to turning around the fortunes of local government.
Citigroup chief economist Gina Schoeman said last week one of the successes of Operation Vulindlela 2.0 would be the progress it makes in turning around dysfunctional municipalities.
The medium-term budget policy statement tabled in October said the government’s consolidated spending on building new, as well as rehabilitating existing, infrastructure would increase from R78.1bn in 2023/24 to R131.1bn in 2027/28. This included roads, bridges, storm water systems and public buildings.
Ninety One said the country’s infrastructure needs are undeniable.
“Urban centres drive a significant portion of SA’s GDP, underscoring the economic importance of a functional municipal infrastructure network. Municipalities remain essential for social and economic stability, and national efforts, including those under the recently announced phase two of Operation Vulindlela, continue to address the governance and financial challenges impeding progress,” it said.
“For investors willing to engage, SA municipal infrastructure offers opportunities to contribute to vital public services with the potential for long-term sustainable returns ... for those seeking high-impact investments aligned with sustainable growth, SA’s infrastructure sector offers a path forward.”
Chris Axelson, head of tax and financial sector policy at the National Treasury, in August said the amendment to regulation 28 in 2023, which allowed pension funds and other investors to invest up to 45% of assets under management in infrastructure, has yet to deliver desired results, as asset allocators are complaining about the lack of bankable projects.
Public works & infrastructure minister Dean Macpherson has vowed to turn SA into a construction site.
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